Question: East Publishing Company is doing an analysis of a proposed new finance textbook. Using the following data, answer (a) through (d).
Fixed Cost per Edition: |
|
Development (reviews, class testing , and so on) |
$18,000 |
Copyediting |
$5,000 |
Selling and promotion |
$7,000 |
Typesetting |
$40,000 |
Total |
$70,000 |
|
|
Variable Cost per Copy: |
|
Printing and binding |
$4.20 |
Administrative costs |
$1.60 |
Salespeople's commission (2% of selling price) |
$0.60 |
Author's royalties (12% of selling price) |
$3.60 |
Bookstore discounts (20% of selling price) |
$6.00 |
Total |
$16.00 |
|
|
Projected Selling Price |
$30.00 |
The company's marginal tax rate is 40 percent.
a. Determine the company's breakeven volume for this book:
i. in units
II. In dollar sales
b. Develop a breakeven chart for the textbook.
c. Determine the number of copies East must sell in order to earn an (operating) profit of $21,000 on this book.
d. Suppose East feels that $30.00 is too high a price to charge for a new finance textbook. It has examined the competitive market and determined that $24.00 would be a better selling price. What would the breakeven volume be at this new selling point?